Deadwood pays dearly for gambling riches

  • Deadwood's Main Street in 1876

    Deadwood Visitors Bureau
  • Mike Trucano, owner of Black Hills Novelty

    Elizabeth Manning
  • Fairmont Hotel owner Ron Russo shows off his casino to winter guest

    Elizabeth Manni

Note: This article accompanies another feature story, "Gambling: A tribe hits the jackpot."

DEADWOOD, S. D. - Before state residents legalized gambling here in 1989, most people in this town of 1,800 or so lived life in the slow lane. They'd see each other for coffee at Marie's Cafe or later in the day at Olé's for a game of cards. Except for a few hundred jobs provided by the Homestake Gold Mine, the town scraped by on seasonal tourism. Summer provided the biggest boost, when thousands of bikers rolled into town for the annual Sturgis Motorcycle Classic and Rally, the second-largest biker gathering in the nation.

But above all, people visited Deadwood in the Black Hills because it was part of the Wild West. This is the mining camp, founded in 1876, where Wild Bill Hickok was shot. He'd only been in town a few weeks when he made the fatal mistake of sitting with his back to the door, playing a poker hand of black aces and eights, known thereafter as a Dead Man's Hand. This was also home to Calamity Jane, Poker Alice, Preacher Smith and Potato Creek Johnny, a beloved, 4-foot-3-inch prospector from Wales who found one of the Black Hills' biggest gold nuggets. Less well-known figures had nicknames like Jimmy-Behind-the-Deuce, Bummer Dan and Slippery Sam.

Legal or not, some bars offered poker games and "for amusement only" slot machines. The upstairs still housed prostitutes. This rough-and-tumble legacy lingered until the 1980s, when state and federal agents shut down the last three whorehouses and many retailers closed their doors. Deadwood was almost dead, and a new Wal-Mart and Kmart in nearby Spearfish promised to put the final nail in the coffin.

"We were left with about 10 shops that sold rubber tomahawks nine months out of the year and were boarded up the other three," says Mike Trucano, who owns Black Hills Novelty, a slot and game machine business.

Then town leaders hit on an idea: Why not legalize some gambling and turn Deadwood into a year-round tourist town? This would bring back the flavor and fun that had left with the madams. Tax revenue from gaming would help prop up the crumbling buildings and replace outdated water and sewer lines.

The goal wasn't to recreate Las Vegas, but rather to supply an economic shot in the arm. There would be mini-casinos offering poker, blackjack and slot machines with $5 bet limits at establishments such as the Old Style Saloon No. 10, said to be where Wild Bill was shot. To open a casino, businesses would also have to run another non-gambling enterprise such as a restaurant, bar or soda fountain. Town leaders proposed a limited number of machines for each building; the first suggestion was 15, later upped to 30. Gambling would act as a magnet to draw in tourists. But, the thinking went, the town itself, and the beauty of the Black Hills, would keep them coming back.

Trucano and seven other locals formed a committee called "Deadwood, You Bet" to promote the idea. They criss-crossed the state drumming up support for a state constitutional amendment legalizing limited gambling inside the city limits of Deadwood. The signature drive worked: It went to the ballot and passed in November 1988, by 64 percent; the state legislature passed enabling legislation in April of the next year; and finally, Deadwood citizens approved gambling in a special town election. The new gambling era began at high noon on Nov. 1, 1989.

The change was dramatic: Deadwood went from boarded-up to booming almost overnight. Streets and sidewalks were ripped up to restore the cobblestones and to put in new water mains. The city renovated its fire station, museum and library. City hall and the police station moved into new digs, and a visitors' center was opened in the old train station. The improvements were underwritten with bonds the city is paying back with gambling taxes. And the money flooded in: Some 2 million tourists spent $150 million in Deadwood last year. Of that, the city collected roughly $5 million in gaming taxes.

But amid all the new money, the locals lost control.

In seven years, Deadwood's gaming halls have multiplied, going from nine at the start to a current high of 80. Today the town has 2,242 slot machines and 68 blackjack and poker tables. Every Tom, Dick and Jane opened a casino, and the governor-appointed South Dakota Gaming Commission let them.

It approved casinos whose only retail was a T-shirt or candy stand. By loosely defining what a "building" was, some casinos were allowed to put in more than 30 machines. Based on the original architecture, the foundation plan or the number of businesses, the gaming commission might decide a single structure should be counted as two or three buildings. The Gold Mine resort, a new hotel in the planning stages, is bending the law creatively: Its foundation is split into 13 foundations, enough "buildings' for 390 slot machines.

Betty Whittington, a Deadwood, You Bet member who has since changed her campaign buttons to read "Deadwood For Sale," says town leaders might have put the brakes on the explosive growth. "But it would have taken someone with backbone." She says the gambling commission and carpetbaggers that moved in forgot that there was a town - and townspeople - here at all.

Now, the people of Deadwood are split on whether their new-found prosperity is worth it. A few have moved away in disgust. Others, like Mayor Barbara Allen, believe it was a matter of survival: "We have a degree of confidence now that we'll still be here tomorrow," she says.

But gambling has exacted a price: When the people of Deadwood lost control as casinos proliferated in their town, they also lost control of their rents, their taxes, their mobility and their community.

Stalemate, not boom

There's a phenomenon scholars call "cannibalization" that often occurs when gambling is introduced in a free-market economy. Real estate speculation drives prices sky high on Main Street; many businesses willingly sell out to the first buyer. Then as casinos rake in cash hand over fist, the hold-outs soon sell or convert to a casino.

Before gambling there were nine stores in downtown Deadwood, including three car dealerships, a department store, a few clothing shops and an auto-parts store, points out Susan Kightlinger, a former Chamber of Commerce employee. There wasn't much to cannibalize, and within a year, they were all gone. Virtually no retail exists in downtown Deadwood today - and there are definitely no gathering spots like Marie's Cafe.

Hilda Fredericksen, who raised six children in Deadwood, misses the old bowling alley the most. Now, it's Deadwood Gulch Resort, with a casino and an 8,000-square-foot arcade - Gulches of Fun - for kids.

Cannibalization has extended to the casinos themselves, as some, especially the smaller ones, are finding it hard to make a living in such a competitive world. Deadwood enjoyed a brief monopoly when gambling first became legal, but three mining towns in Colorado and scores of Indian reservations have since opened up casinos of their own. In addition, state-operated video-lottery machines greet South Dakotans in nearly every pizza parlor, bar and liquor store. Having bought in at inflated prices, Deadwood casino owners find it almost impossible to sell.

Today, it seems more like a stalemate than a boom.

Deadwood's state of limbo is apparent at the Fairmont Hotel. A brothel in boom times and a flophouse during busts, it's now a casino. Owner Ron Russo has put $1.6 million of his own money, plus $300,000 in historic preservation loans from the city, into the hotel. He keeps the casino open but says his hotel still needs about $1 million in improvements. The downstairs is mostly restored to its historic glory; the upstairs remains stuck in the flophouse days.

Russo, a former cable TV executive with a New Jersey accent, is eccentric enough to fit in with Deadwood's past. Usually wearing a leather vest, he looks like a biker who came to the Sturgis Rally and never left. He can talk for hours about his plans for the hotel, or about the junk he's found while renovating: suitcases belonging to the bums who once slept here and old gaming tables hidden during a big raid in the 1940s. Downstairs, in the basement, he shows off the bar where he hosts parties for the bikers in August; the countertop is recycled from one of Deadwood's defunct bowling lanes.

He wishes he had the money to finish the hotel, but he still hasn't paid last year's taxes. He hopes to pay them soon - and get back the wine license the city suspended - when he sells some property to the city.

Russo believes real estate will rebound when Deadwood becomes more a destination resort. He says he'll probably sell the hotel then, because "it gets hard seeing people lose their money gambling."

Growing Pains

Casino owners aren't the only ones with economic troubles. Residents like Hilda Fredericksen and her husband, Dwayne, moved from a house downtown to Deadwood's only mobile-home park, Claim Jumpers, when casino traffic made parking too difficult. She took that move in stride - after all, she had seen other area residents relocated for expansions in mining, which was Deadwood's mainstay industry before gambling. But now Claim Jumpers has a new owner who raised the rents by $100, and rumor has it he might build a motel or casino there. The Fredericksens may have to move again.

Property owners are also being hit. Gambling proponents promised property taxes would go down because of casino profits. Instead, taxes have gone up all over the state. Elmer Pritchard, a city commissioner and owner of the town's Laundromat, says his slot machines don't make him any real money. "It just about pays my property tax," he says.

Although Deadwood residents say they still feel safe, crime has increased nearly three-fold since gambling - and its attendant growth and tourism - began. And despite the enormous amount of money flowing through the town, Lucile Tracy, who runs a program called the Lord's Cupboard for the Methodist church in nearby Lead, says she hands out food to about 200 people a month, compared to three people a week before gambling arrived. Some of those people are compulsive gamblers, but many are newcomers who come to work in the casinos at $4.25 an hour, and find it difficult to feed their families and pay the bills.

"It's real hard for me to condemn the casinos, though, because they bring in big vanloads of food," says Tracy.

A deal with the devil

Some residents say all the other growing pains pale in comparison to the loss of community. They feel they forfeited their downtown in a Faustian trade for survival. Hilda Fredericksen says it's a standing joke: "Gee whiz, we have to go to Sturgis, Spearfish or Rapid City to see someone you know from Deadwood."

Kids complain they have nothing to do. Since most casinos don't allow minors, they say the only remaining hang-outs are the fast food joints.

Some people say it's even taken the fun out of gambling. Before legalization, people used to make sure problem gamblers didn't get in too deep, says Whittington. It wasn't unusual for a bar owner to return money to customers who lost too much. Now it's too corporate and state regulators wouldn't allow it. "I'd rather deal with the Mafia than get picked to death by bureaucrats," says Whittington.

Though it's difficult to imagine amid the din of slot machines, some people predict Deadwood will become South Dakota's Aspen - a once-funky mining town transformed by big bucks and newcomers into a resort for the rich and famous.

Mayor Allen says town leaders are trying to avoid "Aspenization" by bringing back a sense of community. The town hopes to build a regulation-size ballfield and spruce up the rodeo grounds.

"If you build it, they will come."

Some residents say the town's only choice is to get bigger and better. In gambling, it's called chasing your losses.

Enter Kevin Costner, the Hollywood actor, and his brother Dan. Costner rediscovered the Black Hills during the filming of Dances With Wolves. Shortly after gambling became legal, he and his brother bought the Midnight Star, which they turned into the classiest casino and restaurant in Deadwood.

Now they're planning a resort and casino, scheduled to open in May 1998, that should transform the town yet again. The new resort will be called the Dunbar, after John Dunbar, the character Costner played in Dances With Wolves. With 838 acres and 320 rooms decorated Ralph Lauren Western-style, it promises to be a hotel the likes of which the Wild West has never seen. Plans include an 18-hole golf course, tennis courts, an equestrian center, a fishing lake, a snow bowl for sledding, a full gym, and of course, the casino. Jim Fisher, program director for the resort, says costs will likely exceed $100 million.

The Dunbar will cater to a whole new corporate clientele, says Fisher. Resort planners are hoping to lure urban professionals from both coasts and from abroad - especially from Japan, where people are crazy about Kevin Costner and the Wild West. Rooms will go for $200 and up in the summer, Fisher says.

Townspeople have heard the rest before: They won't come just for gambling. They will come for conventions, to ski at one of the two local resorts or simply to enjoy the beauty of the Black Hills.

Fits and starts

But it's been rough going for the Costners, slow enough to make some locals wonder whether it will really happen.

First, a land trade between the Costners and the Forest Service angered a few vocal Lakota Sioux, one of the tribes that had befriended Costner during the movie filming. The Sioux have long fought for land rights in the Black Hills, and some were angered by the brothers' plans to build a resort on land they consider theirs.

Then the Costners said they wouldn't build their resort unless the state raised the bet limit from $5 to $100. After three separate votes in the state legislature, the bet limit narrowly passed, only to be defeated in a statewide referendum that anti-gambling forces in South Dakota campaigned to put on the ballot.

After the last defeat, the Costners threatened to pull the plug on the project. So the state, the county and the town of Deadwood offered the brothers millions in tax breaks, plus help with a short-line railroad between Rapid City and Deadwood. The railroad and steam trains will be paid for by state bonds but guaranteed by the Dunbar.

Now that the resort seems to be chugging full-steam ahead, the town is preparing itself for the new breed of tourist and looking forward to the better-paying jobs the Dunbar will offer. Residents are hoping some retail businesses will return, though they realize the stores are more likely to be J. Crew than J.C. Penney.

Most town residents think of the Costners as "Deadwood's great white hope" (though they've been called a few choicer names as well).

Town leaders say even if the project fails, they still need to keep upgrading what they offer tourists. "To me, the Dunbar is always icing on the cake," says Franklin Hotel and casino owner Bill Walsh, a former priest who gave up the Catholic church for "the theology of leisure." "We're already a destination resort town."

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